Seagate Technology PLC (STX): Cheap and High Yielding… But Is It Worth It?

Microsoft and Google Inc (NASDAQ:GOOG) need their cloud services as well, in order to tie in all of their components and products into one big succinct ecosystem. They don’t really have any other choice but to play ball. The cloud war seems to really be a series of battles as a result of a larger ecosystem war.

Seagate Technology PLC (NASDAQ:STX), as a data storage company, may be able to profit from the sidelines, and the cloud and the massive amount of data that will be generated (which also needs to be stored) could be a huge opportunity for growth. Seagate, as a leader in solid-state drives, also has a footprint in the mobile revolution, and is aggressively looking to increase its presence in things such as tablets.

But what if the cloud brings rain?

The cloud is a huge hope for growth. The major threat that now faces Seagate is a soft economy, or even a recession. If enterprise demand drops, so will Seagate’s profits. Luckily for Seagate Technology PLC (NASDAQ:STX), cloud computing may help them offset some of the soft environment that poses such a threat — or will it?

Another pressing concern with companies like Seagate, at least in the near-term, and what looks increasingly likely in the long-term as well, is the maturity of the PC market. While operating in a saturated and mature market can be great for a cigarette company, it can also be bad for a tech company who “misses the boat” for the next big thing.

Cigarettes are cigarettes — technology changes daily and eventually becomes obsolete: which is why Marlboros may be around forever, but many formerly dominant tech companies suddenly seem to drown in their own moat, leaving many investors scratching their heads. Seagate may be drowning in its own PC-related moat.

The bottom line

Although Seagate has a higher amount of debt than many other tech companies, it is also priced at an insultingly low 5 times earnings. The company will also pay you nicely — yielding over 4%. The company also faces major headwinds, however, on any weak economic data, as well as any bad PC news — such as the recent drop in PC sales reported by Gartner.

The bright side comes with a global recovery. If the global economy begins to improve, bringing enterprise demand right with it, Seagate will look much more attractive as a value play. Cloud computing and related increasing demand for remote storage is an opportunity, but it’s not so clear-cut as to whether Seagate Technology PLC (NASDAQ:STX) will be able to offset declining PC sales with cloud related revenue. Buy Seagate now as a speculative value play and for its yield, but don’t trust it completely as a long-term holding yet.

Joseph Harry owns shares of Microsoft. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com, Google, and Microsoft.